DSL customers brace for higher prices

Competition and future investment may not get much help from this week's broadband regulatory overhaul, telecom executives warn.

Ben Charny Staff Writer, CNET News.com
Ben Charny
covers Net telephony and the cellular industry.
Ben Charny
3 min read
For two years, the Ruby Ranch Internet Co-op has fought isolation as well as the local telephone giant to bring affordable high-speed online access to a tiny, rural community.

Now the Summit County, Colo.-based DSL (digital subscriber line) service may be facing its biggest challenge yet, thanks to a decision Thursday by the Federal Communications Commission to deregulate parts of the high-speed Internet access industry.

Like other players on the edge of the broadband universe, the 18-member co-op is bracing for an increase in prices brought on by the new policies, even though they were intended to increase competition. Currently, Ruby Ranch leases elements of Qwest Communications' local network for about $3.50 for each of its 18 subscribers per month, but the nonprofit could be forced to pay as much as $24.13 per line per month within the next three years, according to co-op director and founder Carl Oppedahl. And that's on top of regular DSL service charges.

"The FCC seems to have given no thought to the plight of the actual customer," said Oppedahl, who helped set up the co-op in 2001 because commercial DSL service wasn't offered in his neighborhood. "We're all still reeling in shock from yesterday's ruling."

Thursday's decision faces a likely legal challenge that could send the new rules back to the FCC for a rewrite--something that's happened twice before. In the meantime, almost all parties affected by the regulations say they do not bode well for competition in the consumer DSL market, which has struggled for years to make inroads by piggybacking on local phone lines generally owned by the Baby Bells--Verizon Communications, Qwest Communications International, SBC Communications and Bellsouth.

In addition to tiny players like Ruby Ranch, the news looks bad for Covad Communications and other commercial DSL providers as the regulations slowly take effect.

While Covad expects to survive because it has built a small network it uses to service business clientele, the decision could water down its interest in consumer services, reducing competition.

"This decision will result in less choice and increased prices for consumers and small businesses," Covad Chief Executive Charles Hoffman said in a statement Thursday.

In addition to increasing broadband competition, Thursday's decision was intended to encourage investment in ultra-high-speed fiber networks. But the rules could have just the opposite effect, according to telephone company executives, who blasted the decision this week.

Federal regulators hoped the ruling could push the Bells to extend broadband networks directly to homes using more modern and cheaper fiber optics. But Verizon has already indicated that might not be possible, given the nuances of Thursday's decision.

"This is a major setback for the industry, a setback for consumers served by industry and a deterrent to...investment into new facilities," said Verizon Senior Vice President Tom Tauke.

The FCC on Thursday essentially deregulated the broadband industry, voting 3-2 in favor of no longer requiring the Bells to open to competitors any new fiber-optic networks they build in the future. The Bells argued they were in a catch 22--they were forced to charge more for monthly Web services in order to maintain their networks, allowing competitors sharing the networks to undercut their prices.

"I hope this relief will jump-start investment in next-generation networks and facilitate the deployment of advanced services to all consumers, including rural America," FCC Commissioner Kevin Martin wrote Thursday "Our actions could then revitalize the advanced services market, leading to a new period of growth in telecommunications and most importantly manufacturing."

But the FCC is still requiring major phone companies to maintain and share with competitors the existing DSL networks made of copper cables, Tauke said. That might not go over well with the financial community that Verizon must approach for construction capital.

"It appears to be an attempt to require us to maintain two networks: copper and fiber," Tauke said. "That obviously is a major deterrent to investment. You build fiber because it's less costly to maintain. But if you have to maintain a copper network, it takes away much of the financial impact."